The Air Pollution Conundrum

by David Chávez Salazar

The only “policy” to deal with pollution is the extension of private property over all natural resources, which consists of defining property rights, protecting them institutionally and ensuring that they are easily transmissible. If all the natural assets were privately owned, a signal system would emerge, which would coordinate the economic agents’ actions. Those who wish to use a natural space as a waste deposit would have to acquire it, in that way, they would be internalizing the costs of pollution. In case of polluting someone else’s property, they would have to respond legally for this aggression.

In this ideal world, each piece of land would belong to a person, company or community of owners: forests, savannahs, deserts, jungles … The same would happen with bodies of water, someone could, for example, buy a part of the Atlantic Ocean, Lake Baikal, the Ebro River or groundwater.

The case of air is much more complicated. Perhaps someone could take over that homogeneous mixture of gases that surrounds the planet? If so, would we have to pay him to breathe? Of course not. The air, being an overabundant element, cannot be considered as an economic good, hence its commercial exchange is impossible. It is, as Rothbard would say, a “general condition of human well-being.”

From Austro-Libertarian thought, an attempt has been made to address the air pollution problem, although it has not been easy due, precisely, to the characteristics of this element. In this regard, two perspectives have emerged: a strictly legal and another that incorporates economic foundations. Next, the principles of each one will be presented, highlighting its pros and cons. At the end, some insights that can contribute to a definitive solution to this problem will be offered.

The Legal Perspective

The main exponent of this vision is Murray Rothbard, who tries to apply the property rights approach to the issue. In his 1982 essay Law, Property Rights, and Air Pollution he introduces the interesting “zone theory” which asserts that the lower part of the airspace above one´s land is owned; this zone is the limit of the owner´s “effective possession.” In turn, that effective possession is the space that is essential for the complete use and enjoyment of the property. The height of the owned airspace varies according to the facts of each case.

The zone theory is more practical than the ad coelum rule, an old legal principle that states that the landlord owns everything below and above his property, from the core of the Earth to the sky. If this rule were applied, things like air transport or drone flight would be impossible.

In case a third party polluted the airspace belonging to a certain owner, naturally, an aggression would be constituted, which should be resolved by the parties involved (the polluter and his victims) through direct negotiation.

Here are some complications. First, for such negotiation to be feasible, it is necessary for the actors to be few, for there to be closeness between them, and for the source of the contamination to be easily identifiable. Unfortunately, only a few cases meet those features. In the modern world, air pollution involves thousands of actors located in different places. To this is added the “residence period” of pollutants: some may remain in the atmosphere for a few hours, while others may be there for thousands of years. Surely our descendants will suffer the effects of the pollution generated by us, but we will no longer be there to pay for the damage. Another aspect that complicates the issue is that negotiation is impossible when the sources of contamination are not easily identifiable, as is the case with traffic: if I live next to a congested road, what driver (among the hundreds who pass by) should repair me for the damages caused by his pollution?

So far, we have talked about situations in which the component of private property is present. What happens, then, if the pollution is done in an empty place? In this regard, Rothbard states that when an individual has polluted the air or has made excessive noise in an empty territory, automatically acquires an “easement right” to emit x amount of waste into the atmosphere or x decibels of noise.

Let us suppose that a factory is established in an uninhabited area, earning the corresponding easement rights. After a while, a family is settled in the vicinity and begins to complain about the pollution. In that case, there would be no aggression because that family went to the nuisance source deliberately. If it is the polluter who arrives first, and the alleged victim is the one who arrives later, there would be no responsibility for the damage. It would be very different if the same factory had established itself near a community of residents who only want to breathe clean air. Then, pollution is a tort because it interferes with the possession and use of another’s air. Yet, the substances or sound emitted by the polluter must generate demonstrable damage (in accordance with the principles of strict causality and beyond any reasonable doubt) to be considered as a tort.

The Economic Perspective

The main exponent of the economic perspective is Edwin Dolan, who asserts that the price system and not the laws (legal approach) is the only mechanism that allows the coordination of the plans of a large number of widely dispersed actors. Following this premise, he proposes the existence of a market for easement rights.

Wait … that already exists, right? It is called cap-and-trade system. Yes, but Dolan’s approach is different. In the cap-and-trade system that we know, the government sells a limited number of permits to discharge specific quantities of a certain pollutant during a certain period. Therefore, the emissions must be equivalent to the permits acquired by the polluter. If he wants to increase his pollution levels, he must buy new permits from other polluters who are willing to sell them. The problem is that the state can use its power to benefit certain polluters, at the expense of the others, thus granting them an oligopoly on pollution. Precisely, to avoid that, Dolan proposes a system that completely dispenses with the government.

In Dolan’s 100% private system, it is possible to buy and sell rights to emit polluting particles, but also noise. As purchases and sales become frequent, entrepreneurs are likely to establish a trade model based on standardized units. Soon, a fully developed emissions trading market would emerge spontaneously, with a supply of easements for each type of pollution, limited by the number that had been legitimately adjudicated.

Dolan’s idea is interesting, but there are still some concerns. Despite its appearance of free market, cap-and-trade is a system of state origin that works with artificial prices. On the one hand, there is no evidence that a similar system has emerged under free market conditions; on the other hand, it would not be known exactly how prices would be determined and how the transition between a public “market” of emissions and a liberalized one would be managed.

A Liberal Solution to the Air Pollution Problem

The perspectives we have dealt with are characterized by approaching only the consequences of pollution. We must look for a solution that points to the causes of the problem. The good news is that it already exists, it’s called economic development.

According to the American economist Mark Skousen, there is a “link between national income and concern for the environment, which is known as the wealth effect.” He discovered that in countries where rising incomes reached between $6000 and $8000 per year (in 2001 dollars), air pollution began to decline.” And he added that “this link between income and ecological concern creates an interesting paradox: developing nations should maximize economic growth, yet in order to grow faster, they will probably pollute more before they can afford to pollute less. To reduce pollution in the long run, they need to pollute more in the short run!”

In that same argumentative line, the Danish environmentalist Bjorn Lomborg states that environmental development derives from economic development. For him, “only the rich enough can afford the relative luxury of caring about the environment.” Milton Friedman said that “private industry tends to reduce pollution … if there were no modern technology, the pollution would have been much worse”. In fact, in poor countries most households use firewood and charcoal for cooking, instead of using electric stoves, as is done in developed countries. So, who is polluting more?

These approaches can be verified empirically. In 2017, the country that presented the highest levels of air pollution was Pakistan. In the top 5 we find other countries such as Afghanistan, Bangladesh, Egypt, Mongolia and India (1). All of them are economies in development for which clean air is a luxury good. By contrast, in the top 5 of least polluted countries we have Australia, Brunei, New Zealand, Estonia and Finland.

The factor that explains the causal link between economic development and less pollution is the “eco-efficiency”, that is, the optimal use of ecological and economic resources. Producers always look for the most efficient way to use resources: inefficiency translates into waste and waste into financial losses. The profit motive improves the use of inputs, avoiding the massive generation of waste. In this way, they are also developing processes that are friendlier to the environment.

In history we can find several examples of eco-efficiency: for instance, the creation of unleaded gasoline, where it was discovered that lead damaged car catalysts, so it was stopped being used. Or the production of aluminium cans instead of steel, since it was much cheaper for producers to produce them in the former material, besides the savings in transportation. Or the changes that have taken place in the wood industry. In the 1960s and 1970s of North America, meanwhile, one of the main sources of air pollution were the tipi-burners, where sawdust and woodchips were incinerated. At present, these incinerators are practically non-existent, because it was discovered that these materials, instead of being incinerated, could be used in the creation of new products. In all these cases, we see how the profit motive of the capitalists has ended up cleaning the air, which seems to confirm the statement of Jesús Huerta de Soto that “the economic development of the human species tends to coordinate and adjust in a way efficient and respectful with the rest of the species and elements of the natural environment.”

If clean air is a good that only is “produced” by economic development, then, instead of adopting an anti-growth logic to deal with pollution, the opposite should be done. A greater number of developed economies would be fantastic news for the atmosphere.

However, it is necessary to warn that economic development will not reduce air pollution to zero. The only way to achieve that, as David Friedman would say, “is for all of us to drop dead, and even that would create at least a short-run pollution problem”. This is where the legal and economic views become relevant. From the former, we could take the recognition of property rights over the surrounding air of each property (existence of easements), direct negotiation only in those cases where it is possible, and establishment of the causality and damage threshold to determine the existence of damage. From the latter, we may use the idea of ​​a free market of easements that complements economic development.

David Chávez Salazar was an intern at the Austrian Economics Center from April to June 2018. He holds a B.S. in economics and complementary studies in macroeconometric forecasting and capital markets. He is a columnist in different libertarian media, editor of Notas Libertarias, and founder of the Larry Sechrest Institute.

The views expressed on AustrianCenter.com are not necessarily those of the Austrian Economics Center.